BIR Ruling [DA-378-03]

October 20, 2003 BIR RULING [DA-378-03] Secs. 105, 107 VAT Ruling Nos. 005-2000; 026-2000 Abogado Para Sa Bayan Foundation, Inc . 4/F Dao 1 Bldg. 189 Salcedo St., Legaspi Village Makati City Attention: Attys. Rita Linda V. Jimeno and Anotonio C. Cope Chairman and President Gentlemen : This refers to your letter dated March 11, 2003 requesting for exemption from the value-added tax (VAT) as a non-stock, non-profit corporation. Based on records submitted with your aforesaid letter, it appears that Abogado Para sa Bayan Foundation, Inc . is duly registered with the Securities and Exchange Commission on August 28, 2001 under SEC Registration No. A2001182782; that the purpose or purposes for which the corporation was formed are the following "1. To organize civic-minded lawyers into a charitable group that will render free legal aid services to indigent Filipinos; 2. To develop and implement programs and projects aimed at educating and creating awareness among the Filipino masses about their legal rights and obligations with the aid of all tools and means of communication such as radio, television, print and websites; 3. To undertake continuing research in support of the organization's legal information and educational campaigns; 4. That, incidental to and in furtherance of, and to carry out the above purposes; 4.1 To accept membership fees and dues and donations in cash or in kind, legacies of properties of any kind; 4.2 To acquire properties by purchase for other legal means; own and hold real and personal properties of any kind, sell, mortgage, lease out, dispose of in any way, such properties through legal means; 4.3 To obtain loans either with or without security; 4.4 To employ personnel; and 4.5 To engage in such activities as are reasonably necessary and/or conducive to or concerned with the purposes above indicated." that no part of the net income which the foundation may obtain as an incident to its operation shall be distributed as dividends to its members, trustees or officers; that in the event of dissolution, the assets shall be distributed to another NGO or foundation organized for similar purposes or the state for public purposes; and that it is maintained by means of membership fees, sponsorships by individuals and institutions as well as from funds and properties of any kind that it may receive by way of donations or legacies and those that it may acquire through other legal modes of acquisition. aCcHEI In reply, please be informed that under Section 105 of the Tax Code of 1997, the 10% VAT is imposed on " Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code. . . ." Accordingly, its aforementioned revenue from "contributions, membership dues and donations," not being derived from sale of services or sale of goods made in the course of business but rather in connection with its non-stock, non-profit activities, is exempt from the 10% VAT. However, the above exemption from the 10% VAT does not extend to importation of goods. Hence, notwithstanding that it is a non-stock, non-profit corporation, its importation of goods shall nevertheless be subject to the 10% VAT pursuant to Section 107 of the said Code. Moreover, if it engages in the sale of goods or services in the course of a business pursuit, in general, it shall also be liable to VAT. [VAT Ruling No. 119-90, dated May 14, 1990 and VAT Ruling No. 005-2000 dated January 27,2000) With regard to your purchases of goods and operations needs, the tax exemption covers only income tax which is a direct tax. It is clear that your tax exemption covers only income taxes which you are directly liable there being no specific reference to your indirect tax exemption . It is noted that VAT is an indirect tax payable by the seller and not by the purchaser of goods. However, being an indirect tax, it can be shifted or passed on to the buyer/purchaser, transferee or lessee of the goods, properties or services. Once shifted to the buyer/customer as an addition to the cost of goods or services sold, it is no longer a tax but an additional cost which the buyer/customer has to pay in order to obtain the goods or services. Thus, the shifting of the VAT to you does not make you the person directly liable and therefore, you cannot invoke your tax exemption privilege to avoid passing on or shifting of the VAT. [VAT Ruling No. 026-2002 dated April 26, 2002] This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours; (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group